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McKinsey: IoT value could be even greater than the hype
The Internet of Things (IoT) is an environment in which objects, animals or people are provided with unique identifiers and the ability to transfer data over a network without requiring human-to-human or human-to-computer interaction. A dynamic industry is evolving around IoT technology, and like other technology waves there are opportunities for both incumbents and new players. But with the benefits come several barriers to capturing the greatest value, warns a McKinsey report.
To realise the full potential from IoT applications, technology will need to continue to evolve, providing lower costs and more robust data analytics. IoT systems raise questions about data security and privacy, in almost all settings. The leaders of most organisations will need to truly embrace data-driven decision making.
McKinsey & Company has estimated that the total potential value of the Internet of Things (IoT) will be between €3.6tn and €10.3tn a year by 2025. Dan Aharon says that most of this value will come from operations and equipment optimisation in factories, chore automation, security in the home, automation in the retail sector, and improvements in public health and transportation services.
According to McKinsey researcher Dan Aharon, businesses that don't invest heavily in the internet of things in the next 10 years is unlikely to be able to remain competitive. Aharon believes that any business that fails to invest heavily in IoT in the next 10 years will be unlikely to be able to remain competitive.
The McKinsey report looks at other key areas where IoT will drive value include autonomous vehicles and condition-based vehicle maintenance, security and energy improvements in offices, operations and safety optimisation in work sites, human health and fitness, and logistics and navigation.
McKinsey expects twice as much value to come from business-to-business (B2B) applications than from business-to-consumer (B2C) applications. But trends and benefits will be different across advanced and developing economies. For example, advanced economies is likely to get more value from IoT than developing economies.
Developed markets are expected to benefit from improved health treatments through remote heart monitors, while developing markets will be able to leapfrog the development of medical centres through telemedicine services.
The Mckinsey report forecasts that advanced economies are likely to lead the deployment of IoT technologies. Europe is expected to get the biggest benefit in terms of improved logistics. Australia and Canada are expected to benefit most from improvements in the mining and oil and gas industry. China is expected to get the most value from factory optimisation.
IoT will also bring about the transformation of business processes through things like predictive maintenance, better asset utilitsation and higher productivity, and enabling new business models such as services based on remote monitoring capabilities.
The report says that digitisation is blurring the lines between technology companies and other types of companies. For example, makers of industrial machinery are creating new business models, but using IoT links and data means their products can be offered as a service.
However, the report highlights the importance of understanding where real value can be created and successfully addressing various system issues. Chief among the issues is interoperability, key to capturing 40% of the total value. Interoperability is not happening yet in any major way and is a key barrier to be overcome. Without it, we won’t see the huge incremental value that IoT can bring.
Trust and concerns about security and privacy are other barriers that need addressing so organisations can share data more freely.
Like interoperability, data analytics is key to unlocking value. But the McKinsey estimates that less than 1% of data generated is used for things such as anomaly detection and real-time control. More can be used for optimisation and prediction, which generate the greatest value.
Other barriers are the need for cheaper sensors and stronger batteries, business structure and cultures aligned for both horizontal and vertical integration, and public policy to ensure regulation does not hinder digital transformation.
Source: Computer weekly, IoT value even greater than the hype, says McKinsey
McKinsey: Unlocking the potential of the Internet of Thing